A director should seek advice from a qualified insolvency practitioner as soon as he or she becomes aware that the company may be trading whilst insolvent.
The shareholders of a company can resolve to appoint a liquidator to the company, often by signing a Resolution for the liquidator’s appointment. In most circumstances this can be done in a prompt and timely manner.
A creditor who is owed over $2,000 (and certain other parties) can apply to Court to have a liquidator appointed to a company.
If a company has available assets of a sufficient value to cover some or all of the costs of liquidation, then it is likely that there will be no up front costs to the directors or shareholders to appoint a liquidator to the company.
If a company has little or no assets, then a liquidator will generally seek that funds be made available to pay his or her costs of acting as liquidator of the company.
The amount of a director’s liability for insolvent trading (if a claim is pursued by a liquidator) will be the total amount of the company’s unpaid debts which were incurred during the period of the company’s insolvency.
However, it is common for the ASIC to seek to disqualify a person from acting as a director for up to five years, if that person has been the director of two or more companies which have been placed in insolvent liquidation in the last seven years.
This does not apply to directors of companies which have been wound up by way of a (solvent) Members Voluntary Liquidation.